I’ve been getting a flurry of hits on old posts about Caterpillar and I’m not certain why. It’s possible that it’s about this:

A lawsuit filed by a manager at Caterpillar Inc. says the heavy-equipment maker avoided paying more than $2 billion in federal income taxes from 2000 to 2009 by accounting fraudulently for billions of profits.

Daniel Schlicksup, who was a global tax strategy manager for the company from 2005 to 2008, alleges that the company wrongly attributed at least $5.6 billion in profits from sales through an Illinois-based warehouse to its unit in Switzerland in order to lessen its tax burden and increase earnings.

This story brings up a point I’ve made from time to time here: international companies’ overseas subsidiaries make it practically impossible to calculate GDP correctly. What is an import or export in such an environment? Back when I was working for a German company it was routine for finished goods to be imported from Germany as parts. At the time parts were accounted for as an intracompany transfer while finished goods weren’t.

It’s also possible that they’re checking up on Caterpillar’s acquisition of Chinese mining equipment manufacturer Bucyrus. Caterpillar has received final approval of the acquisition from the Chinese government and will continue operations in China under the Caterpillar name.

Hat tip to Tyler Cowen for pointing out this study from the Kauffman Foundation of business creation and job creation. While finding that while new firms continue to be generate the bulk of new jobs gained:

historically, new firms in the United States have generated about 3 million new jobs every year, but that recent cohorts have performed much worse, creating only 2.3 million jobs in 2009. At the level of individual businesses, one data series (BLS establishment data) showed that in the 1990s new establishments opened their doors with about 7.5 jobs on average, compared to 4.9 jobs today.

You can click on the graphic above for a larger version.

I believe that the reasons for this are the present economic downturn, demographic, attitudinal, and structural and will be very hard to reverse.

However, I also think that this study has some shortcomings. I find the reliance on averages troubling. A lot of the sharp decline the study reports since the 1990s are a direct consequence of the present downturn. There actually is no decline in business creation in the Aughts if you stop through 2007.

But to some degree they’re understating the problem. When viewed as business and job creation per 100,000 population there has been a marked decline over the last 30 years and the last two decades reflect a situation of steady firm creation and slowing job creation, punctuated by a flurry of activity during the recent dot-com and housing bubbles.

Despite the successes of companies like Microsoft, Google, and Oracle most software startups are small and stay small. Their life cycle is very different from that of even small manufacturing firms not only in employment but in capital expenditures (that’s one of the reasons so many are formed). Software startups won’t save us.

Virginia Postrel takes note of a report from the Oxford Review of Economic Policy of 278 projects from 20 countries over a period of 70 years. The history is a sorry one in which cost over-runs are the norm rather than the exception. The explanation?

“It is not the best projects that get implemented, but the projects that look best on paper,” Flyvbjerg writes. “And the projects that look best on paper are the projects with the largest cost underestimates and benefit overestimates, other things being equal.”

Given the reality that we will continue to have public infrastructure projects, I think it behooves us to change how we look at them. Small is beautiful.

My own experience in this area is that most cost over-runs are due to delays and many if not most delays are bureaucratic in nature.

I am pleased to report that my old blog-friend, Marc Schulman, who posts at American Future which, as you will notice, I have maintained in my select blogroll, has resumed posting after a lengthy hiatus. I had never given up hope.

Marc’s background, experience, temperate views, and strong analytic skills are sorely needed in the blogosphere and I’m glad that he’s back.

The Watcher’s Council has announced its winners for last week. First place in the Council category was Simply Jews’s The story of a fanatic or why Alice Walker is sailing to Gaza. My interpretation of her views is that she sees the Israeli-Palestinian conflict through the lens of colonialism which I think is a stretch.

First place in the non-Council category was Treppenwitz with Who, what, where, why and when?. In this post Treppenwitz provides background on an iconic photo from the Viet Nam War using the old reporters’ questions. It’s an interesting post.

You can see the full results here.

Here are the results for the previous week. First place in the Council category was The Noisy Room’s The Fascist Stealth of Agenda 21.

First place in the non-Council category was Right, Wing Nut with Sarah Palin Loves The Jews More Than The Jews Love Themselves.

You can see the full results here.

Rather than post a reaction of my own to the lousy jobs number I’ll just direct you to Barry Ritholtz’s excellent piece. Read the whole thing—it’s terse. Here’s a snippet that may sound a bit familiar to you:

President Obama: Needs to figure out what his economic plan is, how to interact with the GOP, and whether he will abandon his base. His hands — and brain — seem to be completely tied when it comes to anything involving jobs.

I am increasingly beginning to think that President Obama has no policy, no vision on the economy. Let me suggest a reason that his entire team of senior economics advisors (other than Tim Geithner) has jumped ship: they’re frustrated with him and he’s frustrated with them. All of the other excuses are just window dressing. It may be that they were frustrated with Tim Geithner. I do believe that he has the best resume with so little competence that I’ve ever heard of.

IMO the public would forgive President Obama’s bold mistakes WRT to the economy but they won’t forgive inaction. As me auld mither used to say “It’s easier to ask for forgiveness than for permission”. That his actions may do little or that he was dealt a bad hand are beside the point. The problem I’m afraid he has is that the present situation is beyond the experience of his economic advisors and beyond the experience of his political advisors. Either he should round up some 90 year old economic and political advisors or just trust to his instincts and do the right thing. Pecca fortiter, as Martin Luther said.

I made a flip comment on a post at OTB about a Pew poll that found, unsurprisingly, that the support among Americans for Social Security, Medicare, and Medicaid is strong. The comment has earned me a certain amount of ire. I am surprised that reasonably intelligent people actually believe that people over 65 only receive as much paid out in benefits as they paid in in taxes.

It’s not true. The folks over at the Urban Institute, not generally thought of as a bastion of conservative thinking, did a study on this very subject. They found that if you include a 2% real interest rate for the average person lifetime benefits paid by Social Security are on the order of contributions while the benefits paid by Medicare are a multiple of what was contributed. A couple with each partner earning an average wage received in combined benefits about 20% more (including the interest) than was paid in combined taxes.

And that 2% real interest rate is a very rosy assumption. Where will the average person get a 2% real interest rate? Not from a savings account. Those don’t even pay 2% interest these days let alone 2% real interest. Equities? Two problems: first it goes both up and down (by my calculation the Dow has declined about 5% since December 2007) and it has both winners and losers.

And it’s certainly not from real estate at least not any more (as practically any homeowner can tell you).

The only place the average person gets that kind of real interest is from the federal government, i.e. from other people and from borrowing. Right now we’re borrowing a very great deal of that and, even if we rescind the “Bush tax cuts” (something I support) and withdraw our troops from Iraq and Afghanistan (something I also support with caveats), we’ll still be borrowing a great deal of that.

Entitlements are not a return on investment. They’re benefits. They are transfer payments. They’re a handout. And a lot of those benefits are going to ordinary middle income and even wealthy people.

Both Social Security and Medicare are cashflow negative. We’re borrowing to pay them. That means higher interest paid in the future (maybe significantly higher interest). Right now the fastest-increasing of those benefits, Medicare, is increasing in cost at 9% per year while incomes are increasing at 3% a year. That’s a train wreck.

Bruce Bartlett, rapidly earning the status some have already granted him as a “national treasure”, has a solid op-ed in the Washington Post on the debt ceiling. In the op-ed he punctures five widely-held misconceptions about the debt ceiling:

1. The debt limit is an effective way to control spending and deficits.
2. Opposition to raising the debt limit is a partisan issue, i.e. a Republican malady.
3. Financial markets won’t care much if interest payments are just a few days late — a “technical default.”
4. It’s worth risking default on the debt to prevent a tax increase, given the weak economy.
5. Obama must accept GOP budget demands because he needs Republican support to raise the debt limit.

The above are all wrong and in some cases enormously wrong.

I haven’t written a great deal about the debt ceiling here. I think it’s purely a political contrivance regardless of which party is doing the contriving. Not only do I think that the debt ceiling should be raise, I think it should be abolished. When the debate over the debt ceiling occurred once a generation it was bad enough but now that we’re having the same dreary debate over it every couple of years it’s a monumental waste of time—a way to get some camera time and avoid dealing with the underlying problem: excessive spending by Congress.

I think that so far Republicans have played their hand pretty well: they’ve managed to put reducing the deficit on the front burner. It will be interesting to see how they reconcile their public positions on various issues. I don’t see any way that we can reduce the deficit, fight wars all across the Middle East and South Asia, maintain Medicare spending, and maintain the current total level of taxation.

There is no national consensus on actually reducing federal spending so the discussion in Washington largely centers around slowing its rate of growth. I don’t think that’s enough to prevent the train wreck I think is on the horizon but apparently our elected leaders do.

After my last discouraging post on the bleak politics of fiscal policy, I thought I’d attempt something a bit cheerier. Why don’t we try to brainstorm some ideas for making things better?

As a bit of an introduction (or small digression) the other day I read a post from a woman whom I gather was laid off from a researcher’s job in biotechnology. Politically, she seems a bit left of center. In her post she bitterly declaimed that the problems with the economy weren’t structural, it was just a question of greedy, ignorant managers trying to squeeze the last dollar out the enterprises they manage by off-shoring anything that could possibly be off-shored (not to mention some things that can’t). Far be it from me to defend greedy, ignorant managers (I work with them every day) but what she was complaining about are structural problems.

As I’ve repeated here far too frequently, I believe we have structural economic problems that limiting the time horizon you’re considering to just the last ten years obscures. I think our problems go back much farther and, unless you believe that bubbles of historic proportions are somehow normal, economic growth and its adjunct, employment growth, have been more phlegmatic than they should have been and should be going into the future.

Getting beyond the ideological wrangling and the obvious exceptional issues with our healthcare and financial systems, what should we be doing?

1. Cheap energy

I think that the discussion of energy over the last 30 years but over the last five or six years in particular has been too claustrophobic. The objective, as some have put it, should be energy that is too cheap to meter rather than figuring out how to get by with a lot less energy.

My preference in this area is for small thorium-based fission reactors. These get around many of the security and safety issues posed by yesterday’s reactors. If there’s one area in which I’d like to see an “X Prize”-type contest this is it. However, they’re not the only alternative.

There are other things that go right along with cheap energy including a more capacious, flexible, and resilient power distribution system. With cheap energy all sorts of things become possible; without it I honestly don’t see a particularly bright future.

2. Advanced fabrication techniques

This includes fab labs, 3D digital printing, desktop manufacturing and a host of related activities. If you’re concerned about competing with the Chinese on price, zero labor costs sounds like a pretty good way to do it. This technology will induce a radical reorganization of manufacturing away from dull, boring, mindless, repetitive activities and grant a premium to design.

3. More agriculture and a greater variety of crops

I know that this may seem counter-intuitive but I think there’s a lot of potential for increasing our agricultural production and agricultural exports. Did you know that the Netherlands is the third largest agricultural exporter? Me, neither. If the Netherlands can be an agricultural exporting powerhouse, we can certainly produce a lot more. Heck, we’re twenty times the size of France and we only export twice as much.

The greater variety seems obvious to me. Our policy has been far too focused on a handful of crops for the last eighty years. One of the effects of that policy (beside the environmental effects) is to grant dominance to a handful of mega-corporations.

4. Inexpensive, effective, rigorous higher education

I’m open to other suggestions. Let’s hear your ideas.